EU Enlargement: Change-Purses Instead of Wallets

EU Enlargement: Change-Purses Instead of Wallets

Czech unions are pressing for wage increases
even before the country enters the EU. It may not be realistic, but
it’s probably necessary, this editorial from TOL Wire partner Tyden
argues.

When are we really going to get to take
advantage of European Union membership? It is not going to be
immediately. Most of the Czech Republic will still be traveling
around Europe with their wallets half empty for the next few years.
But are we slowly getting there?

Before the Czech Republic can become an equal
member of the European Union, our salaries will have to double. We
have already received the invitation, and starting in 2004, Czech
representatives should be sitting in the European parliament. But
we are not going to enjoy the same rights as the rest of the
Europe. The European Commission doesn’t like our low salaries, and
individual countries are simply afraid of the inflow of cheap labor
from the East. So for seven long years [most EU countries] have
banned Czech citizens from looking for jobs there.

The differences should be at least partially
eliminated in seven years. But the truth is that in the beginning,
the overwhelming majority of us will feel like poor relations in
the EU. We can only welcome the pressure coming from the unions for
increasing our salaries now, but the question is, who will pay for
it? Companies argue that if the salaries grow too fast, they will
lose the advantage of cheap labor and will be swallowed up by
strong competition from Western Europe.

TRAILING EUROPE

In the second half of 2002, the average Czech
salary has increased to 15,772 Czech crowns per month. That is
about 519 euros, which represents about one-quarter of the average
German wage.

The unions are already leading the fight with
the slogan: “Joining Europe with European Salaries.” They demand a
7 percent increase in salaries within the next year. Given current
levels, that works out to about 1,000 crowns, or 30 euros.
Considering what we need to do to catch up with European salaries,
the union slogan sounds like a parody.

Businesses and the Czech National Bank are
reluctant. “Five percent growth in real wages is not realistic,
given the current real economic growth,” Zdenek Tuma, the governor
of the Czech National Bank, said after negotiations with one of the
union bosses.

It might seem that the unions have already lost
their battle, despite their promising slogan. But the government is
on their side. The Czech government has agreed with 7 percent
growth for salaries in the state sector, and all indications are
that the government will side with the unionists during the hunt
for European salaries. “Media within the EU have been pressuring us
for years already. They obviously are concerned about our low
wages,” says union spokeswoman Jana Kasparova.

She does not want to disclose in which companies
the unions will demand the most or where the battle will be the
roughest. Should foreign investors fear the worst?

If everything goes well, perhaps we will have
European salaries by 2008. That is when the Czech Republic is
supposed to join the European monetary system, according to the
unambiguous statement of the Czech Finance Minister Bohuslav
Sobotka. It would mean getting rid of the Czech crown and accepting
the euro.

According to a government study, everything
should be directed toward increasing the average salary in 2008 to
around 20,000 crowns, net, per month. It wouldn’t be enough to
catch up with Germany, but at least we would be closer to poorer EU
countries such as Portugal, Greece, and Spain…

WHAT ABOUT THE EURO?

By 2008, only four years after EU entry, Czech
citizens could look forward to paying by euro. But it is not going
to be easy.

It is enough to realize one simple thing: The
smallest banknote is five euros. That is about 150 crowns. Every
time we go shopping for less than that, we will have to use coins.
Most people will be positively assailed by coins. Regular wallets
as we know them will become unworkable. It will become better to
take a leather change-purse to go shopping, otherwise your pockets
will tear.

What’s more, the prices will start rising
immediately after we join the euro zone. Every businessman tends to
round up, and that means we don’t have much to look forward to.
Unions and the social democratic government may win the fight over
increasing wages, but the living standard will decrease overall
because of the drastic increase in prices…

It is obvious that equalization of salaries and
living standards with other EU countries will be a long-term
process. Even union leaders realize that an increase in wages must
be connected to an increase in productivity. “The key to increasing
wages and living standards is economic growth,” says Martin
Fassman, a union analyst.

Theoretically, we could enter the EU with the
same salaries we have now. The crown would just have to become
stronger: say, 6.4 crowns to the euro. But that would be absolutely
impossible. According to producers, Czech goods would become
impossible to sell, causing inflation and economic decline.

But the Czech crown is getting stronger, and
salaries are already closer to EU salaries. But the stronger crown
has not been accompanied by economic growth. And it makes sense
that companies are reluctant to increase salaries according to the
expectations of the unions…

Overall, it is not surprising that no one wants
to make projections about how long it will be before the Czech
Republic reaches EU norms.

To read more about the candidate countries,
please visit

Transitions Online.